HUMAN PHEROMONE SCIENCES, INC. | ||
(Exact name of registrant as specified in its charter)
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California | 94-3107202 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
84 West Santa Clara Street, San Jose, California | 95113 | |||
(Address of principal executive offices) | (Zip code) |
Not applicable | ||
(Former name, former address and former fiscal year, if changed since last report)
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Page |
PART I
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FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS
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Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
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3
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Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2011 and 2010
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4
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Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2011 and 2010
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5
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Notes to Financial Statements (Unaudited)
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6
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ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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12
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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18
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ITEM 4.
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CONTROLS AND PROCEDURES
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19
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PART II
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OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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20
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ITEM 1A.
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RISK FACTORS
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20
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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20
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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20
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ITEM 4.
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(REMOVED AND RESERVED)
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20
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ITEM 5.
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OTHER INFORMATION
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20
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ITEM 6.
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EXHIBITS
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20
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SIGNATURES
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21
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June 30,
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December 31,
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|||||||
(in thousands, except share data)
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2011
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2010 (1)
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||||||
(unaudited)
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||||||||
Assets
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||||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 106 | $ | 92 | ||||
Accounts receivable
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76 | 108 | ||||||
Inventories
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37 | 26 | ||||||
Other current assets
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33 | 49 | ||||||
Total current assets
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252 | 275 | ||||||
Total assets
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$ | 252 | $ | 275 | ||||
Liabilities and Shareholders' Equity (Deficit)
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||||||||
Current liabilities:
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||||||||
Accounts payable
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$ | 42 | $ | 42 | ||||
Current portion of deferred revenue
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82 | 146 | ||||||
Advanced payment
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100 | - | ||||||
Accrued professional fees
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41 | 52 | ||||||
Accrued employee benefits
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42 | 42 | ||||||
Accrued income taxes
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2 | 2 | ||||||
Other accrued expenses
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8 | 6 | ||||||
Total current liabilities
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317 | 290 | ||||||
Non-current liabilities
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||||||||
Deferred revenue
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- | 24 | ||||||
Total liabilities
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317 | 314 | ||||||
Commitments and Contingencies
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||||||||
Shareholders' deficit:
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||||||||
Common stock, no par value, 13,333,333 shares authorized,
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||||||||
4,151,954 shares issued and outstanding at each date
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21,098 | 21,098 | ||||||
Accumulated deficit
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(21,163 | ) | (21,137 | ) | ||||
Total shareholders' deficit
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(65 | ) | (39 | ) | ||||
Total liabilities and shareholders’ deficit
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$ | 252 | $ | 275 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
(in thousands except per share data)
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2011
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2010
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2011
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2010
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||||||||||||
Net revenues
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$ | 124 | $ | 186 | $ | 310 | $ | 371 | ||||||||
Cost of goods sold
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11 | 28 | 63 | 62 | ||||||||||||
Gross profit
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113 | 158 | 247 | 309 | ||||||||||||
Operating Expenses:
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||||||||||||||||
Research and development
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5 | 16 | 10 | 33 | ||||||||||||
Selling, general and administrative
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125 | 202 | 261 | 434 | ||||||||||||
Total operating expenses
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130 | 218 | 271 | 467 | ||||||||||||
Loss from operations
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(17 | ) | (60 | ) | (24 | ) | (158 | ) | ||||||||
Other expense
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||||||||||||||||
Interest expense, net
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1 | - | 1 | - | ||||||||||||
Total other expense
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1 | - | 1 | - | ||||||||||||
Net loss before provision for income taxes
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(18 | ) | (60 | ) | (25 | ) | (158 | ) | ||||||||
Provision for income taxes
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1 | 2 | 1 | 2 | ||||||||||||
Net loss
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$ | (19 | ) | $ | (62 | ) | $ | (26 | ) | $ | (160 | ) | ||||
Net loss per common share
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||||||||||||||||
Basic
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$ | (0 .00 | ) | $ | (0 .01 | ) | $ | (0 .01 | ) | $ | (0 .04 | ) | ||||
Diluted
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$ | (0 .00 | ) | $ | (0 .01 | ) | $ | (0 .01 | ) | $ | (0 .04 | ) | ||||
Weighted average common shares outstanding
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||||||||||||||||
Basic
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4,152 | 4,152 | 4,152 | 4,152 | ||||||||||||
Diluted
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4,152 | 4,152 | 4,152 | 4,152 |
Six months ended June 30, | ||||||||
(in thousands)
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2011
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2010
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||||||
Cash flows from operating activities
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||||||||
Net loss
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$ | (26 | ) | $ | (160 | ) | ||
Adjustments to reconcile net loss to net cash
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||||||||
used in operating activities:
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||||||||
Depreciation and amortization
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- | 1 | ||||||
Stock-based compensation
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- | 15 | ||||||
Changes in operating assets and liabilities:
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||||||||
Accounts receivable
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32 | 30 | ||||||
Inventories
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(10 | ) | 4 | |||||
Other current assets
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15 | 8 | ||||||
Accounts payable and accrued liabilities
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(9 | ) | (42 | ) | ||||
Deferred revenue
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(88 | ) | (100 | ) | ||||
Advanced payments
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100 | - | ||||||
Net cash provided by (used in) operating activities
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14 | (244 | ) | |||||
Cash flows used in investing activities
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||||||||
- | - | |||||||
Net cash used in investing activities
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- | - | ||||||
Cash flows used in financing activities
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||||||||
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- | - | ||||||
Net cash provided by financing activities
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- | - | ||||||
Net increase (decrease) in cash and cash equivalents
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14 | (244 | ) | |||||
Cash and cash equivalents at beginning of period
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92 | 350 | ||||||
Cash and cash equivalents at end of period
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$ | 106 | $ | 106 | ||||
Three months ending
June 30,
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Six months ending
June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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|||||||||||||
Right of first discussion
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$ | - | $ | - | $ | - | $ | - | ||||||||
Exclusive license
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29 | 32 | 75 | 86 | ||||||||||||
Consulting services
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- | - | - | - | ||||||||||||
Total
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$ | 29 | $ | 32 | $ | 75 | $ | 86 |
Three months ending
June 30,
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Six months ending
June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
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|||||||||||||
Royalty revenues
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$ | 68 | $ | 75 | $ | 124 | $ | 150 | ||||||||
License fee
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8 | 7 | 14 | 14 | ||||||||||||
Total
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$ | 76 | $ | 82 | $ | 138 | $ | 164 |
June 30, 2011
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|||||||
(unaudited)
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December 31, 2010
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|||||||
Components (raw materials)
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$ | 34 | $ | 23 | ||||
Finished goods
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3 | 3 | ||||||
Total
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$ | 37 | $ | 26 |
The Company follows the provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 provides for the calculation of “Basic” and “Diluted” earnings per share. Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and dilutive common shares outstanding during the period. For the three months ended June 30, 2011 and 2010, options to purchase 837,000 and 907,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be antidilutive. For the six months ended June 30, 2011 and 2010, options to purchase 838,000 and 908,000 shares of common stock, respectively, were excluded from the computation of diluted earnings per share since their effect would be antidilutive.
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Three months ending June 30,
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Six months ending June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
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Net income (loss) available to common shareholders (unaudited)
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$ | (19 | ) | $ | (62 | ) | $ | (26 | ) | $ | (160 | ) | ||||
Weighted-average common shares outstanding during the period
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4,152 | 4,152 | 4,152 | 4,152 | ||||||||||||
Fully diluted weighted-average common shares and potential common stock (unaudited)
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4,152 | 4,152 | 4,152 | 4,152 |
Nonstatutory Stock Option Agreements
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Three months ending
June 30, 2011
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Six months ending
June 30, 2011
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||||||||||||||
Shares
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Weighted Average Exercise Price
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Shares
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Weighted Average Exercise Price
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|||||||||||||
Outstanding, beginning of period
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400 | $ | 0.34 | 400 | $ | 0.34 | ||||||||||
Options Granted
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- | - | - | - | ||||||||||||
Canceled or Expired
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- | - | - | - | ||||||||||||
Outstanding, June 30, 2011
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400 | $ | 0.34 | 400 | $ | 0.34 |
Directors’ Plan
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Three months ending
June 30, 2011
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Six months ending
June 30, 2011
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||||||||||||||
Shares
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Weighted Average Exercise Price
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Shares
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Weighted Average Exercise Price
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|||||||||||||
Outstanding, beginning of period
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20 | $ | 0.33 | 20 | $ | 0.33 | ||||||||||
Options Granted
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- | - | - | - | ||||||||||||
Canceled or Expired
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(10 | ) | $ | 0.54 | (10 | ) | $ | 0.54 | ||||||||
Outstanding, June 30, 2011
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10 | $ | 0.12 | 10 | $ | 0.12 |
2003 Plan
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Three months ending
June 30, 2011
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Six months ending
June 30, 2011
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||||||||||||||
Shares
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Weighted Average Exercise Price
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Shares
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Weighted Average Exercise Price
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|||||||||||||
Outstanding, beginning of period
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420 | $ | 0.48 | 420 | $ | 0.48 | ||||||||||
Options Granted
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- | - | - | - | ||||||||||||
Canceled or Expired
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- | - | - | - | ||||||||||||
Outstanding, June 30, 2011
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420 | $ | 0.48 | 420 | $ | 0.48 |
Three months ending June 30,
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Six months ending June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
(unaudited)
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(unaudited)
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(unaudited)
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(unaudited)
|
|||||||||||||
Markets:
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||||||||||||||||
U.S. markets
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$ | 19 | $ | 59 | $ | 77 | $ | 80 | ||||||||
International markets
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- | 13 | 20 | 41 | ||||||||||||
Net product revenue
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19 | 72 | 97 | 121 | ||||||||||||
License revenue (worldwide)
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105 | 114 | 213 | 250 | ||||||||||||
Net sales
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$ | 124 | $ | 186 | $ | 310 | $ | 371 |
Three months ending
June 30,
|
Six months ending
June 30,
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|||||||||||||||
2011
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2010
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2011
|
2010
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|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
Right of first discussion
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$ | - | $ | - | $ | - | $ | - | ||||||||
Exclusive license
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29 | 32 | 75 | 86 | ||||||||||||
Consulting services
|
- | - | - | - | ||||||||||||
Total
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$ | 29 | $ | 32 | $ | 75 | $ | 86 |
Three months ending
June 30,
|
Six months ending
June 30,
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|||||||||||||||
2011
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2010
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2011
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2010
|
|||||||||||||
(unaudited)
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(unaudited)
|
(unaudited)
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(unaudited)
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|||||||||||||
Royalty revenues
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$ | 68 | $ | 75 | $ | 124 | $ | 150 | ||||||||
License fee
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8 | 7 | 14 | 14 | ||||||||||||
Total
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$ | 76 | $ | 82 | $ | 138 | $ | 164 |
June 30, 2011
|
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|||||||
(unaudited)
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December 31, 2010
|
|||||||
Components (raw materials)
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$ | 34 | $ | 23 | ||||
Finished goods
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3 | 3 | ||||||
Total
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$ | 37 | $ | 26 |
Three months ending June 30,
|
||||||||
2011
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2010
|
|||||||
(unaudited)
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(unaudited)
|
|||||||
Net product revenue by markets:
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||||||||
U.S. markets
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$ | 19 | $ | 59 | ||||
International markets
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- | 13 | ||||||
Net product revenue
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19 | 72 | ||||||
License revenue (worldwide)
|
105 | 114 | ||||||
Net Revenues
|
$ | 124 | $ | 186 |
Three months ending June 30,
|
||||||||
2011
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2010
|
|||||||
(unaudited)
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(unaudited)
|
|||||||
Gross Profit by Revenue Type:
|
||||||||
Net product gross profit
|
$ | 8 | $ | 44 | ||||
License gross profit
|
105 | 114 | ||||||
Total Gross Profit
|
$ | 113 | $ | 158 |
Six months ending June 30,
|
||||||||
2011
|
2010
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Net product revenue by markets:
|
||||||||
U.S. markets
|
$ | 77 | $ | 80 | ||||
International markets
|
20 | 41 | ||||||
Net product revenue
|
97 | 121 | ||||||
License revenue (worldwide)
|
213 | 250 | ||||||
Net Revenues
|
$ | 310 | $ | 371 |
Six months ending June 30,
|
||||||||
2011
|
2010
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
Gross Profit by Revenue Type:
|
||||||||
Net product gross profit
|
$ | 47 | $ | 79 | ||||
License gross profit
|
200 | 230 | ||||||
Total Gross Profit
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$ | 247 | $ | 309 |
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Not required for smaller reporting companies.
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Exhibit31.1
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
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Exhibit31.2
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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
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Exhibit32
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Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350
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101.INS*
|
XBRL Instance Document
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|||||||||
101.SCH*
|
XBRL Taxonomy Extension Schema Document
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|||||||||
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|||||||||
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase Document
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|||||||||
101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
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|||||||||
101.PRE*
|
XBRL Taxonomy Extension Presentation Document
|
HUMAN PHEROMONE SCIENCES, INC.
|
|||
Date: August 15, 2011
|
|
/s/ William P. Horgan | |
William P. Horgan
|
|||
Chairman and Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|
|||
Date: August 15, 2011
|
|
/s/ Gregory S. Fredrick | |
Gregory S. Fredrick
|
|||
Chief Financial Officer
|
|||
(Principal Financial Officer and Principal Accounting Officer)
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Balance Sheets (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
|||
---|---|---|---|---|---|
Common stock, no par value | $ 0 | $ 0 | [1] | ||
Common stock, shares authorized | 13,333,333 | 13,333,333 | [1] | ||
Common stock, shares issued | 4,151,954 | 4,151,954 | [1] | ||
Common stock, shares outstanding | 4,151,954 | 4,151,954 | [1] | ||
|
Statements of Operations (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Net revenues | $ 124 | $ 186 | $ 310 | $ 371 |
Cost of goods sold | 11 | 28 | 63 | 62 |
Gross profit | 113 | 158 | 247 | 309 |
Operating Expenses: | Â | Â | Â | Â |
Research and development | 5 | 16 | 10 | 33 |
Selling, general and administrative | 125 | 202 | 261 | 434 |
Total operating expenses | 130 | 218 | 271 | 467 |
Loss from operations | (17) | (60) | (24) | (158) |
Other expense | Â | Â | Â | Â |
Interest expense, net | 1 | Â | 1 | Â |
Total other expense | 1 | Â | 1 | Â |
Net loss before provision for income taxes | (18) | (60) | (25) | (158) |
Provision for income taxes | 1 | 2 | 1 | 2 |
Net loss | $ (19) | $ (62) | $ (26) | $ (160) |
Net loss per common share | Â | Â | Â | Â |
Basic | $ 0.00 | $ (0.01) | $ (0.01) | $ (0.04) |
Diluted | $ 0.00 | $ (0.01) | $ (0.01) | $ (0.04) |
Weighted average common shares outstanding | Â | Â | Â | Â |
Basic | 4,152 | 4,152 | 4,152 | 4,152 |
Diluted | 4,152 | 4,152 | 4,152 | 4,152 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 05, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Trading Symbol | EROX | Â |
Entity Registrant Name | HUMAN PHEROMONE SCIENCES INC | Â |
Entity Central Index Key | 0000878616 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 4,151,954 |
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NEW ACCOUNTING PRONOUNCEMENTS
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
NEW ACCOUNTING PRONOUNCEMENTS |
3. NEW ACCOUNTING
PRONOUNCEMENTS
The
Company has reviewed the recently issued Accounting Standard
Updates and have determined that none of the recent pronouncements
are currently applicable to the Company and therefore they are not
anticipated to have a material effect on the financial position or
results of operations of the Company. For a listing of
new accounting pronouncements previously disclosed, see Form 10-K
for the year ended December 31, 2010.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization and Nature of Operations
The
Company, a California corporation, was founded in 1989 as EROX
Corporation to develop and market a broad range of consumer
products containing human pheromones as a component. On
May 29, 1998, the shareholders of the Company voted to change the
name of the Company to Human Pheromone Sciences,
Inc. Human Pheromone Sciences, Inc. is alternatively
referred to in this report as “we,” “us,”
“our,” or the “Company”.
The
Company believes that human pheromones and other
naturally-occurring compounds, identified, tested and funded by the
Company, create unique product development and marketing
opportunities for consumer product companies. Product categories
include, but are not limited, to fragrances, toiletry and consumer
products, as well as other types of consumer products that do not
require Food and Drug Administration approval as pharmaceutical
products. The Company believes that its related patents
provide it a proprietary position in developing, licensing and
marketing such products.
Basis of Presentation
The
accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America for interim financial information and with
the instructions to Form 10-Q and Article 8 of Regulation
S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States of America for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been
included. Operating results for the three and six months
ended June 30, 2011 are not necessarily indicative of the results
that may be expected for the calendar year ending December 31,
2011. For further information, refer to the financial statements
and footnotes thereto included in the Company’s annual report
on Form 10-K for the year ended December 31, 2010.
Management’s Plans
The
accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
The Company has incurred net losses of $26,000 in the six months
ended June 30, 2011, and $97,000 and $284,000 for the years ended
December 31, 2010 and 2009, respectively. In addition, the Company
has used cash in operations of $86,000 in the six months ended June
30, 2011, and $258,000 and $557,000 for the years ended December
31, 2010 and 2009, respectively. As of June 30, 2011, the
Company had an accumulated deficit of $21.2 million; cash and cash
equivalents of $106,000 and no long-term debt.
Based
on the Company’s current operating plans, management believes
that the Company’s existing cash resources and cash
forecasted by management to be generated by operations will not be
sufficient to meet working capital and capital requirements through
December 31, 2011. In this regard, the Company must be successful
in its current licensing of its compounds or raise additional
operating capital to fund continuing operations and support the
further development of identified compounds. The Company
has been working to secure the financing to continue with on-going
operations, however, the Company may not be successful with its
plans. If events and circumstances occur such that the Company does
not meet its current operating plans, the Company is unable to
raise sufficient additional equity or debt financing, the Company
may be required to further reduce expenses or take other steps
which could have a material adverse effect on its future
performance, including but not limited to, the premature sale of
some or all of its assets or product lines on undesirable terms,
merger with or acquisition by another company on unsatisfactory
terms, or the cessation of operations.
These
factors raise a substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial
statements have been prepared on a going concern basis that
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The financial
statements do not include adjustments relating to the
recoverability of recorded asset amounts or the amounts or
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Use of Estimates
The
preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
Revenue
is recorded at the time of merchandise shipment, net of provisions
for returns. The Company records revenue from sales
initiated by sales agents, net of the sales commissions earned,
following the interpretative guidance provided by FASB Accounting
Standards Codification (ASC) Topic 605 – Revenue
Recognition. License fees are earned over the license
period according to the terms of the license agreement and
interpretative guidance provided by ASC 605. The
Company records multiple-element arrangements in accordance with
ASC 605-25 Revenue Arrangements with
Multiple Deliverables.
Multiple-element
arrangements are assessed to determine whether they can be
separated into more than one unit of accounting. A
multiple-element arrangement is separated into more than one unit
of accounting if all of the following criteria are
met.
●
The delivered items or service has value to the customer on a stand
alone basis.
●
There is objective and reliable evidence of the fair value of the
undelivered items or service.
●
The delivery or performance of the undelivered items or service is
considered probable and substantially in our control.
If
these criteria are not met, then revenues are deferred until such
criteria are met or until the period(s) over which the last
undelivered element is delivered. If there is objective
and reliable evidence of fair value for all units of accounting in
an arrangement, the consideration is allocated to the separate
units of accounting based on each unit’s relative fair
value.
The
Company’s agreement with Personal Products Company
(hereinafter referred to as “PPC”) represents a
multiple-element arrangement and includes post signing consulting
support to PPC as needed to assist them in claims development and
manufacturing processes, an exclusive right of first discussion for
new compounds that the Company develops and for which the Company
documents supportable claims of effectiveness, and an exclusive
right to its existing patented compounds in specific consumer
product fields. A portion of the initial payment
received as part of the PPC agreement is being recognized as the
Company incurs expenses and expends resources towards fulfilling
the obligations to PPC, based on guidance provided by ASC
605-25.
The
PPC agreement was entered into on August 18, 2006 and will expire
when the initial patents on the licensed technology expire, in
March 2012. For the services and rights granted in the
agreement, the Company received an initial payment of $1,750,000 in
September 2006 and would earn royalties on any products developed
and sold by PPC until the patents expire. The Company
records revenue for the consulting services and right of first
discussions as the Company incurs expenses and expends resources
towards fulfilling its obligations to PPC. License
revenue is being recognized on a straight-line basis over the life
of the agreement of sixty-seven months and when periodic direct
costs are incurred to maintain the license. The Company
began recognizing revenue from all three units during the quarter
ending September 30, 2006.
A
summary of the revenue recognized for these multiple units of
accounting follows (in thousands):
The
deferred revenue from the PPC license agreement as of June 30, 2011
was $82,000.
The
Company has granted two additional license agreements for the
development, manufacture, sale and distribution of consumer
personal care products using the Company’s patented
technology. License fees received and attributed
to these agreements are being recognized on a straight-line basis
over the initial life of the license periods ranging from fifteen
to thirty-six months.
A
summary of the revenue recognized from these additional licenses
and royalty revenues follows (in thousands):
The
deferred revenue from these licenses has been completely recognized
as of June 30, 2011.
Advanced Payment
On
May 16, 2011 the Company and CrowdGather, Inc.
(“CrowdGather”) entered into an Asset Purchase and
License Agreement (the
“Agreement”). Pursuant to the Agreement, the
Company sold to CrowdGather the EROX registered trademark in the
United States, Hong Kong and Switzerland and the erox.com domain
name.
In
addition, CrowdGather obtained the exclusive license to make, use,
sell, distribute, or other wise commercially exploit rights for
product containing a combination of the Company compounds (the
“EROX Product”) marketed to adults solely through adult
sex-based Internet distribution channels worldwide, with the
exception of Taiwan, for the five-year term, which may be extended
for an additional five (5) year period(s) upon mutual agreement of
both parties.
Pursuant
to the Agreement, the Company received a $100,000 payment upon
execution of the Agreement, $50,000 as compensation for the assets
acquired by CrowdGather and for the assistance the Company will
provide for product development, manufacturing and fulfillment
facilitation for their initial product (for which the Company will
sell to CrowdGather its proprietary compounds). The remaining
$50,000 advance payment received will be applied, at a future date,
to acquire restricted common stock of the
Company. Within 30 days of receipt of the EROX Product
from the Company, CrowdGather shall accept the EROX Product or
request changes to the EROX Product; not later than 60 days from
the end of such thirty (30) day period CrowdGather agrees to apply
$50,000 of the advance payment as the payment for the purchased
assets and paid up development fee and the remaining $50,000 of the
advanced payment fee will be converted into restricted common stock
of the Company. The number of shares of the
Company’s common stock to be issued to CrowdGather shall be
calculated by dividing $50,000 by the closing price of the
Company’s common stock on such sixtieth (60)
day. If such day is not a trading day (a day on which
the New York Stock Exchange is open for business) it shall be
calculated by using the closing price the next such trading
day.
Inventories
Inventories
are stated at the lower of cost (first in - first out method) or
market. A summary of inventories follows (in
thousands):
Earnings (Loss) Per Share
As
of June 30, 2011 and 2010, the unaudited components of basic and
diluted earnings per share are as follows (in
thousands):
Capital Stock and Stock Options
During
the six months ended June 30, 2011, no common stock or preferred
stock was issued. During the six months ended June 30,
2010, no options to purchase shares of common stock were granted
under the 2003 Non-Employee Directors Stock Option
Plan. No issued options were exercised during the six
months ended June 30, 2011 and 9,999 stock options expired under
the expired 1990 Stock Option Plan.
The
Company adopted ASC 718 “Compensation – Stock
Compensation”, for accounting for its stock options
effective with the fiscal year beginning January 1,
2006. The fair value of each option granted is
estimated on the date of the grant using the Black-Scholes
option-pricing model. The Black-Scholes pricing model
has assumptions for the risk free interest rates, dividends, stock
volatility and expected life of an option grant. The
risk free interest rate is based on the U.S. Treasury Bill rate
with a maturity based on the expected life of the options and on
the closest day to an individual stock option
grant. Dividend rates are based on the Company’s
dividend history. The stock volatility factor is based
on the past seven years of market prices of the Company’s
common stock. The expected life of an option grant is
based on various factors including historical exercise and
expiration experience rates in addition to the life of the
option. The Company adjusts the compensation expense by
a forfeiture factor based on historical experience. The
fair value of each option grant is recognized as compensation
expense over the vesting period of the option on a straight line
basis.
The
Company does not record the stock compensation expense net of taxes
since there was no material provision for income taxes for the
periods ended June 30, 2011 and 2010 as the Company incurred net
operating losses for which no benefit was recognized, or utilized
tax loss carryforwards. The tax benefit is a component
of the deferred tax asset.
The
Company did not have any employee or of non-employee compensation
expense for stock options to record during the three months ended
June 30, 2011, but did record $4,000 of employee and $4,000 of
non-employee compensation expense for stock options during the
three months ended June 30, 2010.
The
Company did not have any employee or non-employee compensation
expense for stock options during the six months ended June 30,
2011, but did record $8,000 of employee and $8,000 of non-employee
compensation expense for stock options during the six months ended
June 30, 2010. At June 30, 2011, there was no
unrecognized compensation costs related to non-vested share-based
compensation under the employee Nonstatutory Stock Option
grants.
Nonstatutory Stock Option Agreements
In
2006 and 2008, the Company’s Board of Directors granted
nonstatutory stock options to the officers and employees of the
Company covering a total of 400,000 shares of common stock pursuant
to Nonstatutory Stock Option Agreements. The Board of Directors had
set terms and conditions of these stock options. Options
were granted at the fair value at the date of the grant as
determined by the average closing price of the Company’s
common stock on the day of the grant.
A
summary of the activity under the Nonstatutory Stock Option
Agreements is as follows (in thousands except per share
data):
At
June 30, 2011 all of the options to purchase 400,000 shares were
exercisable.
Non-Employee Directors’ Stock Option Plan (Directors’
Plan)
In
June 1993, the Company’s Board of Directors adopted a
Non-Employee Directors’ Stock Option Plan
(“Directors’ Plan”) covering a total of 158,333
shares of common stock, which provides for a one-time automatic
grant of options to purchase 8,333 shares of common stock upon
director’s election to the board and annual grants thereafter
of options to purchase 3,333 shares of common stock to each
non-employee director at an exercise price equal to the fair market
value of the stock on the date of grant. This
Directors’ Plan has expired, but stock options issued under
this Directors’ Plan are still outstanding.
A summary of the activity under the Directors’ Plan is as follows (in thousands except per share data):
At
June 30, 2011 all of the options to purchase 10,000 shares were
exercisable.
2003 Non-Employee Directors’ Stock Option Plan
On
June 25, 2003, the Board of Directors adopted the 2003 Non-Employee
Directors’ Stock Option Plan (the
“2003 Plan”). On June 20, 2007
the Board increased the maximum number of authorized shares of
common stock which may be issued on exercise of the options granted
pursuant to the 2003 Plan from 300,000 shares to 600,000
shares. The 2003 Plan expired on June 24,
2010. This plan replaces the Directors’ Plan which
expired on June 13, 2003. The 2003 Plan provided for
annual grants of options to purchase 20,000 shares of common stock
to each non-employee director at an exercise price equal to the
fair market value of the stock on the date of the
grant.
A
summary of the activity under the 2003 Plan is as follows (in
thousands except per share data):
At
June 30, 2011 all of the options to purchase 420,000 shares were
exercisable.
Income Taxes
A
provision for income taxes for the three month period ended June
30, 2011 was recorded for minimum tax liabilities
incurred.
The
Company believes that all of its tax positions are sustainable and
that no significant adjustment to its unrecognized tax benefits is
expected. The majority of the unrecognized tax benefits
relate to positions where only the timing of a deduction item is in
question. Such liabilities are offset by deferred tax assets and
the only effect on the Company's statements of operations relates
to the interest accrued on such liabilities.
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SEGMENT INFORMATION
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Jun. 30, 2011
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SEGMENT INFORMATION |
2. SEGMENT INFORMATION
Sales
by geographic markets for the three and six months ended June 30,
2011 and 2010 were as follows (in thousands):
|
Balance Sheets (USD $)
In Thousands |
Jun. 30, 2011
|
Dec. 31, 2010
|
|||
---|---|---|---|---|---|
Current assets: | Â | Â | |||
Cash and cash equivalents | $ 106 | $ 92 | [1] | ||
Accounts receivable | 76 | 108 | [1] | ||
Inventories | 37 | 26 | [1] | ||
Other current assets | 33 | 49 | [1] | ||
Total current assets | 252 | 275 | [1] | ||
Total assets | 252 | 275 | [1] | ||
Current liabilities: | Â | Â | |||
Accounts payable | 42 | 42 | [1] | ||
Current portion of deferred revenue | 82 | 146 | [1] | ||
Advanced payment | 100 | Â | |||
Accrued professional fees | 41 | 52 | [1] | ||
Accrued employee benefits | 42 | 42 | [1] | ||
Accrued income taxes | 2 | 2 | [1] | ||
Other accrued expenses | 8 | 6 | [1] | ||
Total current liabilities | 317 | 290 | [1] | ||
Non-current liabilities | Â | Â | |||
Deferred revenue | Â | 24 | [1] | ||
Total liabilities | 317 | 314 | [1] | ||
Commitments and Contingencies | [1] | ||||
Shareholders' deficit: | Â | Â | |||
Common stock, no par value, 13,333,333 shares authorized, 4,151,954 shares issued and outstanding at each date | 21,098 | 21,098 | [1] | ||
Accumulated deficit | (21,163) | (21,137) | [1] | ||
Total shareholders' deficit | (65) | (39) | [1] | ||
Total liabilities and shareholders' deficit | $ 252 | $ 275 | [1] | ||
|